Final answer:
ROA of Keller Cosmetics is 15%. For finding ROE, after calculating net income of $9,700 by deducting interest and taxes from EBIT, we need the equity amount which is not provided; hence ROE cannot be computed with the information given.
Step-by-step explanation:
The student is asking about two key financial performance metrics for Keller Cosmetics: Return on Assets (ROA) and Return on Equity (ROE). To find ROA, we multiply the operating profit margin by the asset turnover ratio. Since Keller Cosmetics has an operating profit margin of 3% and an asset turnover ratio of 5, the calculation for ROA is:
ROA = Operating Profit Margin × Asset Turnover Ratio
ROA = 0.03 × 5
ROA = 0.15 or 15%
For ROE, we need to consider the given debt-equity ratio, interest payments, taxes, and EBIT. The firm has equal amounts of debt and equity, due to a debt-equity ratio of 1. To find the net income (NI), we subtract interest payments and taxes from EBIT. Then we can use the formula for ROE:
ROE = Net Income / Shareholder's Equity
Calculating Net Income (NI):
NI = EBIT - Interest - Taxes
NI = $29,500 - $9,900 - $9,900
NI = $9,700
Since the debt-equity ratio is 1, the equity is equal to the firm's total debts. So, for calculating ROE, we divide the net income by total equity. As we need the amount of equity but it is not provided, we cannot complete the ROE calculation without further information.